Employees should consider if they are financially ready to retire. They should look at how the offer fits in with their retirement income plan. Because we provide an Independent Professional Retirement Overview (IPRO) for our clients, when we discuss their VERP offer with them we can see how it fits in with their IPRO retirement plan. It can quickly be updated to see the feasibility of retirement with the VERP offer.

While the Lilly VERP offer may look attractive, you must be aware of how the pension schedule impacts your personal situation. Many employees receiving the offer may be leaving significant pension benefits if they accept the offer. Let’s take a look at an example:

Eli Lilly VERP Real Life Example – Jane

Jane has 26 years of service and is 50 years old. Following is the estimated pension amount under the Voluntary Early Retirement Program (VERP).

Retirement: December 2017

Age 50

VERP

Pension:

Part A Benefit $3,640

Part B Benefit $1,063

Total $4,703

Jane’s 80-point date is less than two years away. Here is her estimated 80-point pension.

Retirement: April 2019

Age 52

80 Points

Pension:

Part A Benefit $3,562

Part B Benefit $ 730

Total $4,292

Over Jane’s lifetime, the VERP pension would provide her with over $300,000 more in income than her 80-point pension.

Jane’s 90-point date is in 2024 and the pension estimate is below.

Retirement: March 2024

Age 57

90 Points

Pension:

Part A Benefit $4,726

Part B Benefit $2,257

Total $6,983

Over Jane’s lifetime, the difference in pension income between the pension under the VERP and her 90- point pension is more than $507,000.

Jane has several things to consider. Her VERP pension is more than $300,000 greater over her lifetime than her 80-point pension. Her 90-point pension is over $2,000 a month more than the VERP pension. She is only 50 years old, so working seven more years is reasonable, and in fact, her plan prior to the VERP offer was to work to her 90-point date or beyond. Her $166,000 lump sum payment would offset the VERP pension deficit vs. the 90-point pension a little bit, but not enough to make a considerable difference. Jane has a lot to gain by working to her 90-point date.

The biggest concern would be if Jane does not take the offer, and then didn’t make it to her 80-point date. This is a critical milestone for pension benefits. Jane doesn’t think this is much of a risk.

Here’s another real-life example of an offer for our client, who we’ll call Tim.

Eli Lilly VERP Real Life Example – Tim

Tim has 29 years of service and is 51 years old. His VERP pension estimate is below.

Retirement: December 2017

Age 51

VERP

Pension:

Part A Benefit $1,692

Part B Benefit $ 489

Total $2,181

Tim’s 80-point date is December 2017. Here is that pension estimate:

Retirement: December 2017

Age 51

80 Points

Part A Benefit $1,522

Part B Benefit $ 236

Total $1,758

The VERP pension is over $400 more per month than Tim’s 80-point pension. This translates to over $197,000 more over Tim’s lifetime. He will also receive a lump sum payment estimated at $79,000. But how does the VERP compare to his 90-point pension?

Retirement: December 2022

Age 56

90 points

Part A Benefit $1,879

Part B Benefit $ 733

Total $2,612

The 90-point pension is over $400 a month more than the VERP pension. The value of the 90- point pension over Tim’s lifetime is more than $44,000 greater than the lifetime value of the VERP pension. But also remember that Tim’s lump sum payment is estimated to be $79,000, more than offsetting the $44,000 advantage of the 90-point pension.

When we compared the results of Tim’s IPRO looking at retiring with the VERP vs. retiring with 90 points, the results were essentially the same. He would be able to support the same amount of retirement income if he retired with the VERP as he would if he worked five more years at Lilly and retired with 90 points.

We have already consulted with many of our clients, as well as many new non-client Lilly employees, on this offer and every case is unique. There are many considerations. Make sure that you are looking at everything before making a decision. If you’d like help evaluating your VERP offer and situation, don’t hesitate to contact us to schedule a time. You can CLICK HERE, call us toll-free at 1-877-901-1631 or contact us by email at info@oaktreeadvisors.com.

These are hypothetical examples and are for illustrative purposes only. No specific investments were used in these examples. Actual results will vary. Past performance does not guarantee future results.

This communication is strictly intended for individuals residing in the states of AL, AZ, AR, CA, CO, CT, FL, GA, ID, IL, IN, KY, LA, MD, MA, MI, MN, MT, NE, NY, NC, OH, PA, PR, SC, TN, TX, WA and WI. No offers may be made or accepted from any resident outside these states due to various state regulations and registration requirements regarding investment products and services.